April 2, 2004
The adage says that knowledge is power. It does not suggest whether the use of that power is for the general good, nor is there any indication of its cost. In its earlier form the adage referred to education, an adjuration to develop the mind. Today it has been down-graded to the level of spying.
The privacy of individual communication and thought was once respected as an inviolable human right. The modern age has completely abandoned this notion of privacy as a natural right. Using all possible forms of technology to deceive, governments today attempt to collect every item of information for a potential advantage. Government has taken on the role of an officially sanctioned and supported eaves-dropper. Written communications were at one time the major target, but today the mails, both surface and air, are read secretly. Governmental agencies attempt to listen in and copy all telephone, telegraph, radio and e-mail transmissions. The cost of this activity is enormous, and the taxpayers who support it are largely unaware it exists.
If the public complains of this activity, it is denied on the one hand and justified as 'national security' on the other. When confronted, the governmental agencies involved do not respond to the ethics or immorality of the conduct, arguing that 'national security' has a higher priority than idealistic notions of human rights. Secrecy now is supported as a branch of "the war on terror."
Information collected is not shared with the public, and the costs of collecting and analysing it are also kept secret. When the bill is presented to Congress, the representatives of the public have little knowledge or underestanding of what they are paying for. This new addiction to spying and interception of communications is now so pervasive that it dominates the domestic and foreign policy of the major countries of the world.
As a practial matter, the major problem with this obsession with secrecy is its cost, in that it places a serious drain on the world's resources. The diversion of funds into the arena of secrecy threatens the survival of democracy, capitalistic free enterprise, education, art, music and all other important institutions that struggle to survive in the world today. It now threatens the world with bankruptcy.
A condition of bankruptcy typically begins with an official declaration, generally of a judiciary nature, but the causes of the bankruptcy exist long before the public declaration is made. Take, for example, the case of a wealthy family living next door. They have everything that money can buy, and outwardly present the appearance of financial integrity and prudence. Suppose, however, that you should learn that their monthly expenses are USD 3,000, while the monthly income is only USD 2,000.
Over a period of time, the indebtedness of the wealthy family increases until it becomes necessary to borrow money regularly in order to pay the monthly capital and interest charges on the debt. The new loan amounts are always increasing because the debt continues to rise, month by month. Eventually it becomes apparent that the debt has grown so large that it can never be paid, but so long as the monthly payments are kept current there is no fear of default or bankruptcy.
Though the wealthy family is hopelessly and helplessly in a cycle of increasing debt, bankruptcy is postponed, contingent on one thing: the ability to get money through the routine practice of making new loans. The wealthy family is actually in a condition of contingent bankruptcy. The formal bankruptcy awaits only the day sufficient money in new loans is not available.
The major economy of the world today is the United States of America, which looks much like the wealthy family next door. The federal debt of the US has grown to over USD 7 trillion, and the rate of its growth is continually increasing, as the budget deficits add on year after year. Today a large investment house (Goldman) estimated that the US deficit could reach USD 12 trillion within a decade.
The US is an economy based on the retail purchases of the public. The citizens, who are the guarantors of the federal debt, are the consumers, and they are allowed to consume on credit. The debt of the consumers is now estimated to be over USD 10 trillion dollars, and is also growing. The number of consumers who formally declare bankruptcy each year is still modest, around 3 % or so. But the number of these consumer bankruptcies is rising.
Alan Greenspan, Chairman of the Federal Reserve, is not able to speak plainly when he makes his routine reports to the US Congress. He hints of the troubles to come, and makes wry comments when the hints are not taken into active policy. He hints because if he speaks his mind plainly, there will be an immediate widespread panic.
The Federal Reserve uses monetary policy as a means of regulating the US economy. The main regulatory tool is slight adjustments in the base lending rate, to stimulate or retard financial activity. The rate is raised or lowered according to perceived trends, as measured by a variety of economic indicators.
The rate must remain flexible, going up when it is thought necessary to curtail inflation. Raising the rate also helps to attract foreign money when selling US bonds on the world market. The rate comes down when the economy requires a boost. The rate is presently at a low, with little room to go lower, but still there are few signs of economic response, as measured by such things as the number of people/consumers who remain unemployed. A jobless citizen is a poor tax payer and a poorer consumer, depressing both tax revenue and retail sales.
A second tool for stimulating economic activity is the tax cut. If the consumers have more money in their pocket, then they may be expected to spend more on buying cars, houses and retail goods in the department stores. Mr. Bush has made a large tax cut, but when he did, it sharply decreased the amount of federal income tax, thereby creating a large increase in the public debt. The US national budget for this year exceeds the expected tax revenue by over USD 500 billion, and there are additional costs of around USD 70 billion required for military and rebuilding activities in Afghanistan and Iraq. It is not anticipated that further tax cuts will be possible in the near future.
What Mr. Greenspan cannot say, for reasons of avoiding panic, is that one of his legs is cut off. While the Federal Reserve can lower the interest rate a bit further, it cannot raise it. This is because the federal debt is now so high that even a small increase in the interest rate places an enormous additional burden on the already stressed US treasury, in order to pay the amount due on the huge debt. Many countries presently pay over 5% on their federal bonds. For each 1% increase in its interest rate, the US would pay USD 70 billion in interest. On long term bonds bearing 5% or higher interest, the US service costs would increase to over USD 350 billion, a sum the US economy clearly cannot pay. The US has thus decided to abandon the thirty year bond, and now concentrates on short term money, sometimes as short as eight days. The primary means for fighting inflation has been lost. The wealthy family next door lives in fear of a forced increase in the interest rate, and watches helplessly as the cost of petrol and other goods go up and up.
When the price of petrol goes up, it takes a big chunk out of the American consumer's pocket, and this is seen in an immediate drop in retail sales. Increasing petrol prices must be absorbed by all areas of the economy, because goods in the US are moved mainly by diesel trucks, and the increased cost of transportation must be passed on to shippers and consumers.
The consumers in the US are largely commuters, typically driving an hour or more from homes in the suburbs to their workplace in the city. The high price of petrol makes a serious dent in the consumer's pocketbook, and sales of houses and cars are beginning to fall in consequence. The popularity of the gas-hungry SUV will surely suffer, while the economical car will get a boost. One sees already a boost in Japanese car sales, which is accompanied by a slowly deepening downward trend in housing construction. The auto and construction industries are two major employers, with roughly 40 % of the workforce related in some way.
OPEC has announced a reduction in oil production of one million bbls/day. It is a peculiarity that the world markets have not responded to the slow increase in the price of crude oil. Though it is at levels only seen during serious crisis, when the markets fell sharply in response, this time the talk is of 'only a temporary peak' in the oil price. It is more likely to be permanent. The various factors which contribute to the price of oil indicate that the earlier propaganda of a 'buyers market' now fails to find an audience. The entry of China into the oil market, now the number two importer, has changed the perception to what has been true all along, it is a seller's market.
The Bush administration is deeply hooked into the secret surveillance scenario, so much so that they cannot themselves tell the truth. It is clear that the reason Vice President Cheney refuses to divulge the minutes of the energy policy meeting, is that the Baker think tank had advised military intervention in Iraq. The Baker report is available on the internet for those interested to read it. The activities of Mr. James A. Baker III over the past three decades make an interesting and informative study. He might be referred to as 'the missing link' in the investigation of the reasons the Bush administration declared war on Iraq.
Watching the news today, one is struck by the insensitivity of the world's major markets to the situation in the United States. Jeremy Rifkin wrote an in-depth article on the coming crisis in the Guardian (March 24. He spelled out, for the first time, very clearly what the world is facing in the coming months. It has made little difference. The notion of an Armageddon, a world-ending war in Palestine, is biblical. What appears more likely today is a financial Armageddon, a world depression of unforseeable consequence, caused by the failure of the US government to exercise prudence in the management of their secrecy programs, stop their interference in foreign affairs, and reverse the inability to be a partner with the other peoples of the world. At the root, one sees greed, the arrogance of superior military power, indifference to environmental, medical, and arms issues. As a consequence of this lassitude, one sees a forthcoming wave of panic and fear.
There is a core of goodness in the American people, one often remarked on in eloquence by the late Alistair Cooke. The American President has now brought them, and much of the world, to a crossroads. He has effectively destroyed the American Dream. The future he leads them to is one of foolishness, frustration and failure. There is another way, one of cooperation, compassion and charity. Time will tell how they choose.
Meanwhile, the costs of the monstrous secret agency engaged in international spying, accompanied by camouflaged unethical foreign policy activities, mostly carried on under threat of military intervention, supported by naval fleets and over 700 military bases across the world, continue. The wealthy family is heard to say, "They hate us because we are rich." If they knew the truth, would they tell it? Or would they lie?
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